So I bought into Fidelity's loss leaders and purchased the ZERO total stock market and ZERO international funds. And in my case they did exactly what Fidelity wanted them to do -- pull me into other products. I opened a Cash Management Account, which I actually love.

In any event, I compared Fidelity Total Market Index (FSKAX) with Fidelity ZERO Total Market Index YTD and they are performing almost identically -- 8.87% for the former and 8.88% for the latter.

Similarly, Fidelity ZERO International Index (FZILX) YTD is 6.61% and Fidelity Total International Index Fund (FTIHX) is slightly ahead at 6.76%. Not bad though.

I guess these zero funds are okay.

Last edited by bck63 on Sat Feb 09, 2019 3:57 pm, edited 1 time in total.

Thank you for this. If I want to stay at Fidelity for part of my portfolio maybe I should just switch to FSKAX? It seems to match fairly closely to VTSAX in terms of after-tax returns -- with a tenth of one percent or so. This stuff is all very stressful. I'm retiring in 11 years. Should I worry about a tenth of a percent? Thanks again for sharing the above and any further insights would be greatly appreciated.

I would not worry about a tenth of a percent, nor would I keep exchanging funds. Time in the market is your friend. Your portfolio does not need to be perfect and sometimes it’s better not to check it all the time. Especially after a short period of time.

FZILX has about 2300 holdings vs FTIHX's 4300. The good thing about tracking error is it can go up or down though.

I wouldn't hold either in taxable due to recent capital gains distributions.

2,300 stocks is one heck of a sample. I think the statisticians would tell you that with such a large sample that there should be little tracking error. A 53.4% sample should do a very good job of representing the universe of 4,300 stocks.

I would not worry about a tenth of a percent, nor would I keep exchanging funds. Time in the market is your friend. Your portfolio does not need to be perfect and sometimes it’s better not to check it all the time. Especially after a short period of time.

FZILX has about 2300 holdings vs FTIHX's 4300. The good thing about tracking error is it can go up or down though.

I wouldn't hold either in taxable due to recent capital gains distributions.

2,300 stocks is one heck of a sample. I think the statisticians would tell you that with such a large sample that there should be little tracking error. A 53.4% sample should do a very good job of representing the universe of 4,300 stocks.

My point isn't how 2300 perform, although (mark my words), I predict FZILX will either outperfotm or underperform FTIHX by 0.06% CAGR over 1, 3, and 5 years. It's that it's holding 2300 stocks costs less.

Whether paying 0.06% more for 2k holdings is a good idea isn't the question. It's whether it costs 0.06% for Fidelity to hold 2k more stocks, and whether people want to pay for that or not.

Last edited by pdavi21 on Sat Feb 09, 2019 10:48 am, edited 1 time in total.

"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

FZILX has about 2300 holdings vs FTIHX's 4300. The good thing about tracking error is it can go up or down though.

I wouldn't hold either in taxable due to recent capital gains distributions.

2,300 stocks is one heck of a sample. I think the statisticians would tell you that with such a large sample that there should be little tracking error. A 53.4% sample should do a very good job of representing the universe of 4,300 stocks.

My point isn't how 2300 perform, although (mark my words), I predict FZILX will either outperfotm or underperform FTIHX by 0.06% CAGR over 1, 3, and 5 years. It's that it's holding 2300 stocks costs less.

Whether paying 0.06% more for 2k holdings is a good idea isn't the question. It's whether it costs 0.06% for Fidelity to hold 2k more stocks, and whether people want to pay for that or not.

Well, if a poll of let's say 2,000 randomly selected people can give you a good idea of the mood of an electorate, a sample size of over 1/2 of the stock universe should represent the entire market pretty darned well. Wish a stats geek would weigh in. I would expect very little tracking error. That said, I would rather own 4,300 stocks in an index rather than 2,300. But statisticians would tell you there would be little difference.

The fund will distribute dividends according to the dividends paid by the underlying.
The fund will be able to cash flow most redemptions from inflows so will have modest to low capital gains distributions. I.e. there will be little need to sell appreciated holdings.

Let's meet back here in January to see if I'm good at guessing.

I still wouldn't own this fund in taxable, however. Own an equity index ETF.

Can you share what it is you love about their Cash Management Account, thanks.
(I have an IRA at Fidelity, but no taxable account)

I'd be happy to! I am just really enjoying having both investing and checking in one place. I have two Fidelity brokerage accounts; one is the CMA and the other for mutual funds. One I call "savings" and the other I call "investing." I keep about $1,000 in the FDIC insured portion of the CMA which I use for small expenditures and getting cash from the ATM, then any "cash" savings above that is in the government money market fund. In the investing brokerage account I am doing a three-fund portfolio with Total US Bond Index, ZERO Total Stock Market Index, and ZERO International Index. It might sound silly, but just seeing checking, cash savings and investing all in one view on the website makes me think more about my spending. I don't want to see the balance go down.

I like that Fidelity reimburses ATM charges. I haven't started using bill pay and may not use that part of it. Will probably use it just to access cash and make small expenditures by debit.

I have most of my investments at Vanguard, so I'm new to Fidelity. I love Vanguard and will continue investing there, but there's also something I like about having two brokerage firms. That may not be a data-driven preference, but I just like it. The no-minimum also helped as I wanted a total bond index fund but didn't want to take 3K from savings to open it at Vanguard.

That's a long answer to a short question. But that's why I like the CMA at Fidelity.

FZILX has about 2300 holdings vs FTIHX's 4300. The good thing about tracking error is it can go up or down though.

I wouldn't hold either in taxable due to recent capital gains distributions.

2,300 stocks is one heck of a sample. I think the statisticians would tell you that with such a large sample that there should be little tracking error. A 53.4% sample should do a very good job of representing the universe of 4,300 stocks.

My point isn't how 2300 perform, although (mark my words), I predict FZILX will either outperfotm or underperform FTIHX by 0.06% CAGR over 1, 3, and 5 years. It's that it's holding 2300 stocks costs less.

Whether paying 0.06% more for 2k holdings is a good idea isn't the question. It's whether it costs 0.06% for Fidelity to hold 2k more stocks, and whether people want to pay for that or not.

Well, if a poll of let's say 2,000 randomly selected people can give you a good idea of the mood of an electorate, a sample size of over 1/2 of the stock universe should represent the entire market pretty darned well. Wish a stats geek would weigh in. I would expect very little tracking error. That said, I would rather own 4,300 stocks in an index rather than 2,300. But statisticians would tell you there would be little difference.

Just to add some stats. Schwab's "Broad" Market" ETF holds ~2500 stocks and returned 7.90%/yr. for the 5 years ending 12/31. Vanguard's "Total" Market ETF holds 3500 stocks and returned 7.92%/yr. Both matched their indexes exactly.

1000 more stocks made a difference of .02% per year.

The stocks in question here are micro-cap stocks. The difference is between owning 98% of the market vs 99%.

the issue with those funds in taxable acct is the capital gain distributions.

at Fidelity, either holding ITOT (no fee to buy/sell) or VTI (fee to buy/sell) would put you in a better place re: capital gain distributions for a total stock market holding.

I would prefer a Fidelity MF that was as good as Vanguard's total stock market mutual fund re: capital gain distributions.. It does not exist b/c of the unique structure of the Vanguard mutual fund/ETF alignment.

When I compare the "return after taxes on distributions", the Fidelity Total Market Index Fund (FSKAX) 10-year return was 12.71% and Vanguard Total Market Index Fund was 12.79% -- a difference of 8 basis points (correct?). This is all new to me, but I found a handy basis point calculator which tells me that the difference is $80 per $100,000.

Is all the discussion about tax efficiency really worth it? It may very well be. I honestly don't know. But I'm not going to lose sleep over eight bucks per 100K invested.

Of course, I've only recently begun paying very close attention to my investing, so my calculations and assumptions might be totally wrong. Someone please tell me if I'm correct or not.

To me the issue of the ZERO funds in taxable is that they're proprietary. You can only hold them at Fidelity. So if you want to switch brokerages you'll have to keep them at Fidelity and move everything else, sell them in taxable which may not be fiscally prudent, or not switch at all.

The fund will distribute dividends according to the dividends paid by the underlying.
The fund will be able to cash flow most redemptions from inflows so will have modest to low capital gains distributions. I.e. there will be little need to sell appreciated holdings.

Let's meet back here in January to see if I'm good at guessing.

I still wouldn't own this fund in taxable, however. Own an equity index ETF.

That sounds like a good guess and I'm hoping that you're right. If you are, then the first round's on me.

To me the issue of the ZERO funds in taxable is that they're proprietary. You can only hold them at Fidelity. So if you want to switch brokerages you'll have to keep them at Fidelity and move everything else, sell them in taxable which may not be fiscally prudent, or not switch at all.

If I have fskax with Fido taxable, but want to be a Vanguard person now and convert it to vtsax in Vanguard taxable, how do I do that?

Duckie wrote:To me the issue of the ZERO funds in taxable is that they're proprietary. You can only hold them at Fidelity. So if you want to switch brokerages you'll have to keep them at Fidelity and move everything else, sell them in taxable which may not be fiscally prudent, or not switch at all.

If I have fskax with Fido taxable, but want to be a Vanguard person now and convert it to vtsax in Vanguard taxable, how do I do that?

I have to sell the fskax in my taxable acct and pay the taxes?

FSKAX is Fidelity Total Stock Market which is not a ZERO fund, and you can move that to Vanguard "in kind" without selling. Moving it from one brokerage to another is not a problem. However, if you want to buy VTSAX with the FSKAX's share value you will still have to sell.

Above I was talking about the ZERO funds like FZROX Fidelity Zero Total Market and FZILX Fidelity Zero International. They are the proprietary funds and they can't be moved, which makes them "iffy" in taxable. For them, if you wanted to close the Fidelity account you would need to sell the ZERO funds because they can't be held anywhere else. It doesn't matter in an IRA because taxes aren't an issue, but in a taxable account selling can cost you.

Now, Fidelity may change the rules in the future and allow the ZERO funds to be sold elsewhere, but I wouldn't count on it.

Aha! So one more reason Fidelity had to start the ZERO funds (in addition to being a loss leader for other Fido products) is to trap you or coerce you from leaving Fidelity, once you have some hefty gains in taxable:

They are the proprietary funds and they can't be moved, which makes them "iffy" in taxable. For them, if you wanted to close the Fidelity account you would need to sell the ZERO funds because they can't be held anywhere else. It doesn't matter in an IRA because taxes aren't an issue, but in a taxable account selling can cost you.

I am not surprised that tax-adjusted returns are higher with the Vanguard fund, but think that its too early to start comparing gross returns.

Agree it's too early, although I think long-term the differences in gross return are going to be negligible anyway. What's more important is that there's already a significant difference in tax efficiency.